Reference no: EM131126671

Zodiac Model Rocketry Company sells model rocketry kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Zodiac, while others are purchased for resale. For the products it manufactures, the company currently bases its selling prices on a product-costing system that accounts for direct material, direct labor, and the associated overhead costs. In addition to these product costs, Zodiac incurs substantial selling costs, and Jack Maxey, controller, has suggested that these sell- ing costs should be included in the product pricing structure.

After studying the costs incurred over the past two years for one of its products, rocket motors, Maxey has selected four categories of selling costs and chosen cost drivers for each of these costs. The selling costs actually incurred during the past year and the cost drivers are as follows:

Cost Category Sales commissions .......................................	Amount $ 675,000	Cost Driver Boxes of rocket motors sold to retail stores
Catalogs .......................................................	295,400	Catalogs distributed
Costs of catalog sales ...................................	105,000	Rocket motors sold through catalogs
Credit and collection .....................................	60,000	Number of retail orders
Total selling costs ..........................................	$1,135,400

The rocket motors are sold to retail outlets in boxes, each containing 12 motors. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales. The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog orders. Maxey believes that the selling costs vary significantly with the size of the order. Order sizes are divided into three categories as follows:

Order Size	Catalog Sales	Retail Sales
Small ...........................................................	1-10 rocket motors	1-10 boxes of motors
Medium .......................................................	11-20 rocket motors	11-20 boxes of motors
Large ...........................................................	Over 20 rocket motors	Over 20 boxes of motors

An analysis of the previous year's records produced the following statistics.

Order Size

Retail sales in boxes (12 motors per box) ..............................	Small 2,000	Medium 45,000	Large 178,000	Total 225,000
Catalog sales in units (i.e., motors) .......................................	79,000	52,000	44,000	175,000
Number of retail orders .......................................................	485	2,415	3,100	6,000
Catalogs distributed ............................................................	254,300	211,300	125,200	590,800

Required:

1. Prepare a schedule showing Zodiac Model Rocketry Company's total selling cost for each order size and the per-rocket motor selling cost within each order size.

2. Explain how the analysis of the selling costs for rocket motors is likely to impact future pricing and product decisions at Zodiac Model Rocketry Company.